Plains All American: Store of Value

08/29/2013 8:00 am EST


This company owns a diversified portfolio of assets covering most of the important energy-producing areas of the US and Canada, reports Robert Rapier, contributing editor to MLP Investing Insider.

Plains All American Pipeline LP (PAA) operates 18,000 miles of crude oil, natural gas liquids (NGLs), and refined product pipelines, and moves approximately 3.5 million barrels of liquid product per day.

PAA's thesis is that under current conditions, refinery configurations will eventually be unable to accommodate projected levels of incremental light sweet crude production in the US.

PAA Executive Vice President John Rutherford argues that the MLP is well-positioned to benefit from these market developments. Specifically, the partnership has the right infrastructure in the right locations to move crude oil to where it is most needed.

The partnership's history shows a strong track record of being in the right place at the right time. PAA had its IPO on Nov. 17, 1998, at an initial market capitalization of $291 million.

Today, the partnership's market capitalization stands at $18.1 billion. In the most recent 10-year period, the average annual return of PAA units was 22.9%.

PAA's $7 billion project portfolio consists of more than 200 projects. Of that total, projects worth $2.1 billion have been approved, including $1.4 billion from the 2013 capital program.

The partnership has generated $7.6 billion of distributable cash flow (DCF) over the past nine years, paying out just short of three quarters of that total and reinvesting the rest. The long-term distribution coverage checks in at a prudent 134%.

The partnership expects 2013 cash flow to be 65% fee-based and 35% margin-based. Among the fee-based businesses are pipelines, storage tanks, and processing plants, while margin-based assets include 800 trucks, 925 trailers, and 5,400 railcars.

The units presently yield 4.5%, and the distributions have increased in 34 of the past 36 quarters. The most recent quarter marked the 46 consecutive period in which PAA has delivered on its forecast.

At 38.5% of debt to assets, PAA has one of the least leveraged balance sheets among the pipeline MLPs. This minimizes the risk of rising interest rates cutting into future distributions.

Given the solid project portfolio and the recent 10% pullback in unit price, PAA units are a solid store of value.

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